UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
--------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____________ to ____________
Commission file number 33-23693
-----------------------------
ENTROPIN, INC.
- --------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
COLORADO 84-1090424
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
45926 Oasis Street, Indio, CA 92201
- --------------------------------------------------------------------------
(Address of principal executive offices)
(760) 775-8333
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(Issuer's telephone number)
N/A
- --------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
As of May 12, 2000, 9,596,680 shares of the issuer's Common Stock, $.001
par value per share were outstanding.
Transitional Small Business Disclosure Format Yes No X
--- ---
ENTROPIN, INC.
INDEX
-----
PART 1. FINANCIAL INFORMATION PAGE NO.
- ------- --------------------- --------
Item 1. Financial Statements:
Balance Sheet - December 31, 1999 and March 31, 2000 (unaudited) 2
Statement of Operations - For the Three Months Ended March 31, 1999
and 2000 and Cumulative Amounts from Inception (August 27, 1984)
Through March 31, 2000 (unaudited) 4
Statement of Stockholders' Equity - For the Three Months Ended
March 31, 2000 (unaudited) 5
Statement of Cash Flows - For the Three Months Ended March 31, 1999
and 2000 and Cumulative Amounts from Inception (August 27, 1984)
Through March 31, 2000 (unaudited) 6
Notes to Unaudited Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 17
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
December 31, 1999 and March 31, 2000
(Unaudited)
ASSETS
1999 2000
---- ----
Current assets:
Cash and cash equivalents $2,260,526 $ 7,429,746
Certificates of deposit - 6,503,000
Accounts receivable - related party - 73,526
Accrued interest receivable - 32,536
Prepaid expenses - 32,238
---------- -----------
2,260,526 14,071,046
Property and equipment, at cost:
Leasehold improvements 61,437 61,437
Office furniture and equipment 23,855 27,023
---------- -----------
85,292 88,460
Less accumulated depreciation (23,429) (32,522)
---------- -----------
Net property and equipment 61,863 55,938
Other assets:
Deposits 12,261 12,261
Deferred stock offering costs (Note 4) 169,425 -
Patent costs, less accumulated amortization
of $82,019 (1999) and $88,096 (2000) 321,150 321,779
---------- -----------
Total other assets 502,836 334,040
---------- -----------
$2,825,225 $14,461,024
========== ===========
See accompanying notes.
2
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
December 31, 1999 and March 31, 2000
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
1999 2000
---- ----
Current liabilities:
Accounts payable $ 199,042 $ 386,975
Accounts payable - related parties 123,763 31,497
----------- -----------
Total current liabilities 322,805 418,472
Deferred royalty agreement (Note 6) 184,071 187,643
Commitments and contingencies (Note 6)
Series A redeemable preferred stock, $.001 par value;
3,210,487 shares authorized, issued and outstanding,
$1 per share redemption value 3,210,487 3,210,487
Series B redeemable convertible preferred stock, $.001
par value; 400,000 shares authorized, 230,500 shares
issued and outstanding, $5.00 per share redemption
value (Note 3) 1,093,175 1,093,175
Stockholders' equity (deficit) (Note 4):
Preferred stock, $.001 par value; 10,000,000 shares
authorized, Series A and B reported above - -
Common stock, $.001 par value; 50,000,000 shares
authorized, 7,382,280 (1999) and 9,382,895 (2000)
shares issued and outstanding 7,382 9,383
Additional paid-in capital 14,647,623 26,954,460
Deficit accumulated during the development stage (14,941,161) (16,223,846)
Unearned stock compensation (1,699,157) (1,188,750)
----------- -----------
Total stockholders' equity (deficit) (1,985,313) 9,551,247
----------- -----------
$ 2,825,225 $14,461,024
=========== ===========
See accompanying notes.
3
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 1999 and 2000
and for the Period from August 27, 1984 (inception) to March 31, 2000
(Unaudited)
Cumulative
amounts from
1999 2000 inception
---- ---- ------------
Costs and expenses:
Research and development (Note 4) $ 259,398 $ 394,033 $ 6,622,048
General and administrative (Note 4) 874,863 915,493 8,598,124
Rent-related party - 2,400 20,714
Depreciation and amortization 9,703 15,170 137,686
----------- ---------- ------------
Operating loss (1,143,964) (1,327,096) (15,378,572)
Other income (expense):
Interest income 2,805 44,411 134,037
Interest expense - - (242,811)
----------- ---------- ------------
Total other income (expense) 2,805 44,411 (108,774)
----------- ---------- ------------
Net loss (Note 2) (1,141,159) (1,282,685) (15,487,346)
Accrued dividends applicable to
Series B preferred stock (Note 3) (30,688) (28,813) (818,123)
----------- ---------- ------------
Net loss applicable to common
shareholders $(1,171,847) $(1,311,498) $(16,305,469)
=========== =========== ============
Basic net loss per common share
(Note 5) $ (.20) $ (.17) $ (3.02)
=========== ============ ============
Weighted average common shares
outstanding (Note 5) 6,000,000 7,646,000 5,404,000
=========== =========== ============
See accompanying notes.
4
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
for the Period from January 1, 2000 to March 31, 2000
(Unaudited)
Deficit
accumulated
Additional Unearned during the
Common stock paid-in stock development
Shares Amount capital compensation stage
--------- ------ ---------- ------------ -----------
Balance, December 31, 1999 7,382,280 $7,382 $14,647,623 $(1,699,157) $(14,941,161)
Adjustment of unearned stock
compensation pursuant to changes
in market prices for consultant
options (Note 4) - - 150,000 (150,000) -
Amortization of unearned stock
compensation (Note 4) - - - 660,407 -
Repurchase of 101,681 stock warrants
for cash (Note 4) - - (330,000) - -
Issuance of common stock pursuant to
public offering (Note 4) 2,000,000 2,000 12,484,138 - -
Shares of stock issued for services 615 1 2,699 - -
Net loss for the three months ended
March 31, 2000 - - - - (1,282,685)
--------- ----- ----------- ----------- ------------
Balance, March 31, 2000 9,382,895 $9,383 $26,954,460 $(1,188,750) $(16,223,846)
========= ====== =========== =========== ============
See accompanying notes.
5
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 1999 and 2000
and for the Period from August 27, 1984 (inception) to March 31, 2000
(Unaudited)
Cumulative
amounts
from
1999 2000 inception
---- ---- ---------
Cash flows from operating activities:
Net loss $(1,141,159)$(1,282,685) $(15,487,346)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 9,703 15,170 137,686
IBC partner royalty agreement 3,572 3,572 187,643
Services contributed in exchange for
stock and stock options 805,799 660,407 7,807,978
Services contributed in exchange for
compensation agreements - - 2,231,678
Increase (decrease) in accounts
payable - related party (26,717) (92,266) 31,497
Advances to related party - (73,526) (73,526)
Increase (decrease) in accounts
payable (3,592) 187,933 386,975
Increase in accrued interest - (32,536) 136,603
Other - (32,238) (30,445)
----------- ----------- ------------
Total adjustments 788,765 636,516 10,816,089
----------- ----------- ------------
Net cash used in operations (352,394) (646,169) (4,671,257)
Cash flows from investing activities:
Purchase of property and equipment (net) (1,500) (3,168) (105,667)
Patent costs (12,566) (6,706) (409,875)
Deposits - - (12,261)
Certificates of deposit - (6,503,000) (6,503,000)
----------- ----------- ------------
Net cash used in investing activities (14,066) (6,512,874) (7,030,803)
Cash flows from financing activities:
Proceeds from recapitalization - - 220,100
Proceeds from sale of common stock (net) - 12,658,263 17,089,278
Proceeds from sale of preferred stock
(net) - - 1,142,750
Repurchase of warrants - (330,000) (330,000)
Proceeds from stockholder loans - - 809,678
Proceeds from stockholder advances - - 98,873
Repayments of stockholder advances - - (98,873)
Proceeds from convertible notes payable 200,000 - 200,000
----------- ----------- ------------
Net cash provided by financing
activities 200,000 12,328,263 19,131,806
----------- ----------- ------------
Net increase in cash (166,460) 5,169,220 7,429,746
Cash and cash equivalents at beginning of
period 445,333 2,260,526 -
----------- ----------- ------------
Cash and cash equivalents at end of
period $ 278,873 $ 7,429,746 $ 7,429,746
=========== =========== ============
(Continued on following page)
See accompanying notes.
6
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 1999 and 2000
and for the Period from August 27, 1984 (inception) to March 31, 2000
(Unaudited)
(Continued from preceding page)
Supplemental disclosure of non-cash investing and financing activities:
During the three months ended March 31, 2000, the Company issued 615 shares
of common stock for services totaling $2,700.
See accompanying notes.
7
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 2000
The accompanying financial statements of the Company have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB. Certain notes and other
information have been condensed or omitted from the interim financial statements
presented in this report. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, the financial
statements reflect all adjustments considered necessary for a fair presentation.
The results of operations for the three months ended March 31, 1999 and 2000 are
not necessarily indicative of the results to be expected for the full year. For
further information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-KSB for the year ended
December 31, 1999 as filed with the Securities and Exchange Commission.
1. Organization and selected accounting policies
Organization:
Entropin, Inc., a Colorado corporation, was organized as a California
corporation in August 1984, to be a pharmaceutical research company
developing Esterom(R) solution, a topically applied compound for the
treatment of impaired range of motion associated with acute lower back sprain
and acute painful shoulder. The Company is considered to be a development
stage enterprise as more fully defined in Statement No. 7 of the Financial
Accounting Standards Board. Activities from inception include research and
development, seeking the U.S. Food and Drug Administration (FDA) approval for
Esterom(R) solution, as well as fund raising.
Concentrations of credit risk:
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of cash, cash equivalents and certificates
of deposit. The Company places its cash with high quality financial
institutions. At times during the periods, the balances at financial
institutions may exceed FDIC limits.
Stock-based compensation:
The Company has adopted Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation. Compensation costs for stock options
is measured as the excess, if any, of the fair value of the options at date
of grant over the exercise price.
8
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 2000
2. Income taxes
At March 31, 2000, the Company has net operating loss carryforwards of
approximately $4,177,000 and future tax deductions of $9,293,000 which may be
used to offset future taxable income. The future tax deductions result from
utilizing the cash basis for income tax reporting purposes and unearned stock
compensation. The difference between the tax loss carryforwards and future
tax deductions and the cumulative losses from inception result from the
losses previously incurred by the Company as an S corporation. The net
operating loss carryforwards expire in 2018, 2019 and 2020. Approximately
$250,000 of the net operating loss carryforward is limited as to the amount
which may be used in any one year. At March 31, 2000, total deferred tax
assets and valuation allowance are as follows:
1999 2000
---- ----
Deferred tax assets resulting from:
Net operating loss carryforwards $ 596,000 $ 1,462,000
Accrual to cash adjustments 874,000 875,000
Unearned stock compensation 807,000 2,378,000
----------- -----------
Total 2,277,000 4,715,000
Less valuation allowance (2,277,000) (4,715,000)
----------- -----------
$ - $ -
=========== ===========
A 100% valuation allowance has been established against the deferred tax
assets, as utilization of the loss carryforwards and realization of other
deferred tax assets cannot be reasonably assured.
3. Redeemable preferred stock
At the Company's election, the annual dividends on the Series B preferred
stock were paid in shares of the Company's common stock valued at $5.00 per
share at July 15, 1999. Dividends are added to net loss in determining net
loss per common share.
4. Stockholders' equity
Completion of public offering:
On March 20, 2000, the Company completed a secondary public offering. The
Company received net proceeds of approximately $12,500,000 (net of offering
expenses of approximately $2,000,000) from the sale of 2,000,000 shares of
common stock and 2,000,000 redeemable common stock purchase warrants. The
warrants are exercisable at $10.50 per share at any time until March 14,
2005. After March 14, 2001, under certain conditions, the warrants are
redeemable at $.25 per warrant (see Note 7). The Company also issued to the
underwriter warrants to purchase up to 200,000 shares at an exercise price of
$8.75 per share and to purchase up to 200,000 warrants to purchase 200,000
shares at $.30 per warrant.
9
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 2000
4. Stockholders' equity (continued)
Other common stock transactions:
On March 9, 2000, the Company entered into an agreement with an organization
to cancel a 101,681 share stock warrant agreement issued in September 1999 in
connection with private placements of common stock. The Company paid $330,000
cash as consideration for cancellation of the warrant agreement.
Stock options and warrants:
The following is a summary of stock option activity:
Options exercisable
Option Wtd.avg. Number Wtd. avg. Number
price per exercise of exercise of
share price shares price shares
--------- -------- ------ -------- ------
Balance December 31,
1999 $1.50 to $5.00 $3.42 2,616,001 $3.44 1,692,670
Granted $0.00 $0.00 - - -
Exercised $0.00 $0.00 - - -
----- ----- --------- ----- ---------
Balance March 31,
2000 $1.50 to $5.00 $3.42 2,616,001 $3.44 1,692,670
========= ===== =========
The following is additional information with respect to those options
outstanding at March 31, 2000:
Wtd.avg.remaining Number
Option price contractural life of Options
per share in years shares exercisable
--------- ----------------- ------- -----------
$1.50 3.1 450,000 75,000
$2.80 2.8 180,001 180,001
$3.00 6.0 625,000 540,001
$4.00 4.0 901,000 897,668
$5.00 4.6 460,000 -
--------- ---------
2,616,001 1,692,670
========= =========
The following is a summary of stock warrant activity:
Warrant price Number
per share of shares
------------- ---------
Balance December 31, 1999 $3.00 to $5.00 1,005,181
Granted $8.75 to $10.50 2,200,000
Repurchased $4.00 (101,681)
Exercised $0.00 -
----- ---------
Balance March 31, 2000 $3.00 to $10.50 3,103,500
=========
10
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 2000
4. Stockholders' equity (continued)
Unearned stock compensation:
At March 31, 2000, the Company had outstanding an aggregate of 5,519,501
options and warrants of which 1,070,000 were at purchase prices lower than
fair value of the stock at date of grant, including the 450,000 stock options
granted to Western Center for Clinical Studies, Inc. (see Note 6). The excess
of the fair value of the options and warrants, using the Black-Scholes option
pricing model, over the exercise price has been recorded as additional
paid-in capital and unearned stock compensation. Unearned compensation is
being amortized to research and development and general and administrative
expense over the term of the related agreements, as follows:
Three Months Ended Cumulative
March 31, amounts from
1999 2000 inception
---- ---- ------------
Research and development $118,592 $ 73,316 $ 915,145
General and administrative 689,207 587,091 5,878,066
-------- -------- ----------
$805,799 $660,407 $6,793,211
======== ======== ==========
5. Basic and diluted net loss per share
Basic net loss per share is based on the weighted average number of shares
outstanding during the periods. Shares issued for nominal consideration are
considered outstanding since inception. Diluted loss per share excludes
dilution from common stock equivalents, as exercise of the outstanding stock
options and warrants would have an anti-dilutive effect. The 10% cumulative
dividends on Series B preferred stock have been accrued and added to net loss
for the purpose of determining net loss and net loss per share applicable to
common shareholders.
6. Commitments and contingencies
Compensation agreements:
In 1993, the Company entered into a 30 year compensation agreement with
I.B.C. limited partners owning 64.28% of the I.B.C. Limited Partnership.
Compensation under the agreement includes a bonus payment of $96,420 to be
paid at the time the Company is reimbursed by a drug company for expenses
incurred for development of the medicine, as well as 64.28% of a decreasing
payment rate (3% to 1%) on cumulative annual royalties received by the
Company. As of March 31, 2000, no liabilities have been accrued with respect
to this agreement.
11
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 2000
6. Commitments and contingencies (continued)
In a separate agreement with certain former I.B.C. limited partners, the
Company has agreed to pay the partners 35.72% of a decreasing earned payment
(3% to 1% of the Company's annual sales) until October 10, 2004. From October
10, 2004 until October 10, 2014, the Company has agreed to pay the partners
17.86% of the earned payment. In accordance with the agreement, the Company
has agreed to pay these former limited partners a one-time payment of $40,000
and a minimum earned payment of $3,572 per calendar quarter beginning on
December 1, 1989. These amounts become payable when the Company is reimbursed
for expenses incurred for the development of the medicine, or from the first
income received by the Company from net sales of the medicine. The quarterly
payments are to be applied against the earned payment to be received by the
limited partners. As of March 31, 2000, the total liability accrued with
respect to this agreement was $187,643. The Company will receive a credit
against the earned payments of 50% of monies which are expended in connection
with preparing, filing, obtaining, and maintaining patents involved with the
sold rights.
Management agreements:
During April 1998, the Company entered into an agreement with Western Center
for Clinical Studies, Inc. (WCCS), to provide assistance in taking Esterom(R)
solution through the clinical trials and New Drug Application(NDA) approval
process. The agreement was subsequently amended on July 21, 1999. The Company
is required to pay management fees of $880,400 through January 5, 2001 and
$76,400 per quarter commencing January 2001 and continuing until NDA
submission. The Company also has granted stock options to WCCS to purchase
450,000 shares of Entropin common stock at $1.50 per share. The options will
expire five years from the date they become exercisable. The shares
underlying the options are also provided with certain registration rights.
In August 1999, the Company entered into an agreement with Therapeutic
Management, Inc. to provide clinical trial management services and monitor
all aspects of Esterom(R)'s Phase III clinical studies. In November 1999, the
Company entered into an agreement with WCCS to assume the Company's
obligations under the Therapeutic Management agreement. The Company will pay
WCCS approximately $350,000 based upon completion of certain project goals.
7. Subsequent event
On May 1, 2000, the Company received net proceeds of $1,188,150 from the
overallotment sale of 180,000 shares of common stock and 300,000 warrants.
The warrants carry the same terms as those sold in the public offering (see
Note 4).
12
8. Changes to previously issued financial statements
In valuing stock options under SFAS No. 123, the Company originally used
private placement transactions as the fair market value of the stock price
used in the Black-Scholes calculation because the volume of private
transactions greatly exceeded the volume of transactions on the Bulletin
Board. These revised statements reflect the use of the quoted market price
of the Company's stock in the Black-Scholes calculation. The effect of this
change on each period is as follows:
Three Months Ended Cumulative
March 31, amounts from
1999 2000 inception
---- ---- ------------
Research and development $(58,714) $(103,990) $ (473,385)
General and administrative 116,748 108,477 2,164,469
-------- --------- ----------
$ 58,034 $ 4,487 $1,691,084
======== ========= ==========
13
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We were incorporated in California in 1984 as Entropin, Inc. ("old
Entropin"), and in 1998, completed an agreement and plan of merger with
Vanden Capital Group, Inc. to exchange all of the issued and outstanding
common shares of old Entropin for 5,220,000 shares of Vanden's common stock.
We were merged into Vanden, and Vanden changed its name to Entropin, Inc. For
accounting purposes, the acquisition was treated as a recapitalization of old
Entropin based upon historical cost, with old Entropin as the acquirer. In
conjunction with the merger, Entropin, Inc. became a Colorado corporation.
From our inception in August 1984, we have devoted resources primarily to
funding our research and development efforts. We have been unprofitable since
inception and have had no revenue from the sale of products or other
resources, and do not expect revenue for the next two years, or until
Esterom(R) solution has received FDA approval. We expect to continue to incur
losses for the foreseeable future through the completion of our Phase III
clinical trials and the New Drug Application process. As of March 31, 2000,
our accumulated deficit was approximately $16.2 million.
Plan of Operation
We raised sufficient funds in 1999 to complete the first part of a two part
Phase III clinical trial program associated with the FDA approval process for
the treatment of acute painful shoulder. The trials began in November 1999
and the first part is scheduled for completion in mid-2000. In March 2000 we
raised additional funds through a successful secondary offering. We intend to
use a substantial portion of these funds to finance part two of our Phase III
clinical trials, our New Drug Application process related to the treatment of
acute painful shoulder, and to provide funds for research and development and
working capital. In the future, we plan to seek FDA approval to market
Esterom(R) solution for the treatment of impaired range of motion associated
with lower back pain and identify and develop other medical applications for
Esterom(R) solution, such as applications for arthritis and other joint
disorders. We intend to minimize our fixed costs by outsourcing clinical
studies, regulatory activities, manufacturing and sales and marketing.
Results of Operations
Three months ended March 31, 2000 compared to the three months ended March
31, 1999. Our research and development expenses were $394,033 for 2000, as
compared to $259,398 in 1999. The increase in research and development
resulted primarily from initiation of Phase III clinical trials. Our general
and administrative expenses were comparable for the two three month periods,
$915,493 in 2000, as compared to $874,863 in 1999. Our interest income was
$44,411 in 2000, as compared to $2,805 in 1999. This increase in interest
income resulted from greater cash and cash equivalent balances during 2000
reflecting the proceeds from private placements and our secondary public
offering.
14
Liquidity and Capital Resources
We have financed our operations since inception primarily through the net
proceeds generated from the sale of our common and preferred stock, and
through loans and advances from stockholders that were subsequently converted
into equity securities. From inception through March 31, 2000, we have
received net cash proceeds from these financing activities aggregating
approximately $19 million. As of March 31, 2000, our working capital was
$13,652,574. On March 20, 2000, we completed a secondary public offering
generating net proceeds of approximately $12,500,000 from the sale of
2,000,000 shares of common stock and warrants. On May 1, 2000, we received
approximately $1,200,000 from the overallotment sale of 180,000 shares of
common stock and 300,000 warrants.
Our liquidity and capital needs relate primarily to working capital, research
and development of Esterom(R) solution, and other general corporate
requirements. We have not received any cash from operations since inception.
Based on our current plans, we believe the proceeds from our secondary
offering and overallotment will provide sufficient capital resources to fund
our operations through the NDA approval process. Expectations about our
long-term liquidity may prove inaccurate if approval for Esterom(R) solution
is delayed or not obtained. We will not generate revenue from sales of
Esterom(R) solution unless Esterom(R) solution is approved by the FDA for
marketing.
Net cash used in operating activities was approximately $646,169 in 2000 and
$352,000 in 1999. The cash used in operations was primarily related to
funding expansion of research and development activities, as well as
establishing an administrative infrastructure. For the three months ended
March 31, 2000, cash used in operating activities principally represents the
net loss for the period of $1,282,685 adjusted for non-cash stock option
compensation and an increase in accounts payable.
In March 2000, we entered into an agreement with Neidiger, Tucker, Bruner,
Inc. to cancel a 101,681 share stock warrant agreement, for which we paid
$330,000 cash as consideration.
As of March 31, 2000, our principal source of liquidity was approximately
$13,900,000 in cash, cash equivalents and certificates of deposit, excluding
the proceeds of our overallotment sale.
In April 1998, we entered into an agreement with WCCS to assist us in
obtaining FDA approval for Esterom(R) solution. We are required to pay
management fees of approximately $880,400 through January 5, 2001 and $76,400
per quarter beginning January 2001 and continuing until a New Drug
Application is filed with the FDA.
In August 1999, we entered into an agreement with Therapeutic Management,
Inc. to provide clinical trial management services and monitor all aspects of
Esterom's part one of the Phase III clinical studies. In November 1999, we
entered into an agreement with WCCS to assume our obligations under our
agreement with Therapeutic Management, Inc. to perform tasks required to
comply with FDA regulations applicable to the conduct, coordination and
management of the first Phase III trial. Among other things, WCCS is to
select investigators, train clinical site personnel, maintain the master file
of all pre-study and study documents, and prepare the Study Report to be
submitted to the FDA. We will pay Western an additional $350,000 based on
completion of certain project goals.
Our operating expenses will increase as we proceed with part two of our Phase
III clinical trials through the New Drug Application and the related FDA
approval process. We also expect that our general and administrative expenses
will increase significantly with the addition of our full-time chief
executive
15
officer and president. The estimated period for which the we expect
available sources of cash to be sufficient to meet our funding needs is a
forward-looking statement that involves risks and uncertainties. In the event
that our capital requirements are greater than estimated, we made need to
raise additional capital to fund our research and development activities. Our
future liquidity and capital funding requirements will depend on numerous
factors, including the timing of regulatory actions for Esterom(R) solution,
the cost and timing of sales, marketing and manufacturing activities, the
extent to which Esterom(R) solution gains market acceptance, and the impact
of competitors' products. There can be no assurance that such additional
capital will be available on terms acceptable to us, if at all. If adequate
funds are not available, we may be forced to significantly curtail operations
or to obtain funds through entering into collaborative agreements or other
arrangements that may be on unfavorable terms. Our failure to raise capital
on favorable terms could have a material adverse effect on business,
financial condition or results of operations.
16
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is not a party to any legal proceedings which management
believes to be material, and there are no such proceedings which are known
to be contemplated.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
--------
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ENTROPIN, INC.
Date: May 14, 2001 By: /s/ Higgins D. Bailey
---------------------------------------
Higgins D. Bailey
Chairman of the Board
Date: May 14, 2001 By: /s/ Wellington Ewen
---------------------------------------
Wellington Ewen
Chief Financial Officer
17